The worldwide liquefied natural gas- LNG market can very well go on to be transformed as well as potentially bifurcate if in case European Union- EU goes on to extend carbon taxes so as to include LNG imports, as per a report by Wood Mackenzie.
The European Union has gone on to extend its Emission Trading Scheme- ETS to shipping, which itself means that LNG cargoes which happen to be coming into Europe will be subject to carbon tax from 2024. Wood Mackenzie’s upgraded Horizons report goes on to explore the global implications when it comes to levy and concludes that if the trading bloc goes on to further tighten the methane regulation or also includes LNG in the Carbon Border Adjustment Mechanism- CBAM, hence effectively placing an import duty on LNG and that too at prevailing ETS carbon prices, then Wood Mackenzie anticipates that the global LNG market would indeed go on to split.
If the EU happens to go ahead and decides to apply such kind of levies, then this will go ahead and even push European gas prices up, but at the same time also bifurcate the worldwide LNG market, and hence will go ahead and create a two-tier LNG market, says the Vice President of Gas & LNG Research, Wood Mackenzie, Massimo Di Odoardo.
He goes on to add that if the taxes happened to be limited to the EU, or even got extended to say Japan as well as South Korea, trade flows would most likely be optimized elsewhere so as to mitigate the impact that it would have.
LNG emissions are under the scanner
The environmental credentials of LNG are being scrutinized in increasing detail, as the report continues to state in its subsequent section. The value chain for LNG is extremely carbon intensive and plagued by methane losses, despite the fact that it emits around half of the carbon dioxide (CO2) that coal does when it is burned.
But it also adds that while LNG players happen to be actively working to decrease the greenhouse gas- GHG footprint pertaining to their projects, the reluctance when it comes to buyers paying a premium in terms of lower-emission LNG has so far gone on to curb the sellers appetite so as to commit to prominent investment and hence reduce carbon intensity.
US LNG happens to be one of the worst performers
It is worth noting that the Wood Mackenzie report has gone on to discover that not all the LNG projects are equal. Within the LNG projects also that are located outside of the United States, methane goes on to account for between five and fifteen percent of the overall carbon intensity. Methane happens to be quantified in terms of kilograms of carbon dioxide equivalent, or kg CO2e. However, in the case when it comes to LNG projects throughout the United States, methane can go on to make up for a significant portion, which goes on to range from 25% to 40%. According to Wood Mackenzie, the increased usage of pneumatic devices as well as compressors in shale gas production has gone on to led to higher levels of methane losses.
Di Odoardo went on to state that the U.S happens to be having some of the highest-emitting projects in the world, with upstream reservoir types as well as the pipeline distances to LNG facilities going ahead and contributing to the high methane intensity. The range of CO2 equivalent per tonne of LNG in the US happens to be between 800 and 1400 kg.
As per Wood Mackenzie, projects which have the lowest carbon emissions will go on to gain from an import tax when as far as the emissions are concerned, and also targeting premium markets will go ahead and at the same time boost trading profitability. But proximity when it comes to the premium markets will indeed hold the key, with Qatar as well as Mozambique needing high carbon prices so as to be lured away from the proximate markets within emerging Asia, which are not likely to go ahead and introduce an import tax when it comes to emissions.
High carbon taxes required so as to decarbonize LNG
It is indeed worth noting that the report’s analysis goes on to conclude that a tax on methane emissions which is amounting to US $2800 per tonne- t/CH4 and is equivalent to US $100/t CO2e, will indeed be effective when it comes to achieving its objectives. Methane decrease remains the low-hanging fruit as far as the emissions are concerned with progress made throughout the varied countries, supported because of the tightening domestic methane regulations.
A methane import tax will indeed go ahead and help offer additional economic incentives while at the same time also limiting LNG price upside. In such a scenario, exporting countries would also get encouraged so as to introduce domestic levies and also retain taxed revenues, said Di Odoardo.
But Wood Mackenzie concluded that, as far as overall carbon emissions are concerned, taxes imposed just in Europe will not go ahead and achieve the needed goal of large-scale decarbonization when it comes to LNG projects worldwide, and hence a bifurcated LNG market will instead be the most likely outcome.
Di Odoardo goes on to add that if there is to be any kind of the material impact that is expected, a carbon price that is closer to US $200/t CO2e will indeed be needed when it comes to LNG imports. Moreover, this would have to get introduced and that too on a worldwide level for it to be completely as well as truly effective when it comes to decreasing carbon intensity, and the clear fact is that this is not likely to happen. The thing is that for now, all the eyes will be on Europe so as to witness what it goes on to do next.
